Introduction

It’s an ultimate dream to own and purchase a property whether it’s for Airbnb or personal reasons. But the truth is, not everyone can afford to do so. The good news is that there is a viable and more affordable option called rental arbitrage! 

If you’re wondering about Arizona’s Airbnb rules, process, and profitability – then this article is for you. In this guide, we’ll explain rental arbitrage in layman’s terms and provide some expert tips. We also included the best areas to do rental arbitrage in Arizona to help you make the best investment decisions. Stoked to learn more? Continue reading!

What is Rental Arbitrage?

Rental Arbitrage is an expert technique where you sublease a property for the sole purpose of Airbnb. This is initially allowed with the property owner’s or landlord’s approval.  Rental arbitrage is somehow similar to house hacking, except that you don’t own the property. Instead, you convince a landlord to lease you a property that you can then furnish and sublease on Airbnb and VRBO.

Rental Arbitrage is an efficient method for multifamily houses, duplexes, or triplexes. You can easily use the money from your short-term rental to pay off your lease and profit some more. If done right, this can be a full-fledged business!

If you own a duplex or triplex property, then it is pretty straightforward. You can live in one part of the house and rent out the other. This process is known as house hacking. Property investors try this method after taking a loan on a property and use the rent to pay off the mortgage. The short-term rent will help you pay for your property’s long-term lease. This helps you keep the difference at the month-end after paying for the long-term lease. 

Here’s a perfect example to understand how rental arbitrage works. Assume that you are renting a duplex in Arizona for $1,800/month. You are living by yourself in the property and you decide to sublease an extra room on Airbnb. Let’s say you listed it for $100/day and got 80% occupancy. This will generate approx $2,600/month in revenue. Not only will it help you pay off your complete rent, but give you a profit of $800. This, in a nutshell, is called Rental Arbitrage.

Is rental arbitrage allowed in Arizona? 

Yes, Airbnb rental arbitrage is certainly legal in the state of Arizona. The Arizona government provides detailed information about their shared housing rules, including occupancy restrictions, guest record keeping, and minimum stay requirements. Violating these requirements may result in penalties and suspension or cancellation of your registration number. 

This list is not exhaustive, but it should be a good start in understanding local laws. If you have any questions, it’s recommended to contact the Ministry of Planning and Development or consult a local tax attorney. Here are some of the Airbnb rules in Arizona that you should take note of:

• Arizona’s Short-Term Leasing Regulations

The Arizona Council approved the “Short-Term Vacation Leasing Regulations” in January 2020. This requires vacation or short-term rental owners to register with the city government and provide emergency and complaint contact information. 

The decree also outlines the prohibited uses of vacation rentals and imposes penalties for violations ($500 for the first violation, $1,000 for the second violation within 12 months, and $ 3,500 for the third violation within 12 months). Check Arizona city’s website for more information on short-term rental rules.

• Arizona’s Rental Registration

All residential rental units, including vacation and short-term rentals, must be registered in Maricopa County under ARS 331902. You can register your rental through this link. 

• Hotel and Rental tax

Arizona requires owners and operators of hotels and certain rental properties to apply for permits. You should refer to Chapter 14 of the City Code to determine whether these rules apply to your list.

• Taxes

Arizona assesses sales tax on real estate leases and additional tax on temporary housing. Guests who qualify as “permanent residents” or those who stay for 30 days or more are exempted from temporary accommodation tax. 

Arizona also imposes a temporary lodging tax on guests staying less than 30 days.

• Housing and Construction Standards

Phoenix has established rules and regulations for the construction, design, and maintenance of buildings. This includes regulations on habitability, health, and safety. Certain regulations that apply to residential and non-residential uses may be relevant to your listing. 

It is also important to understand and comply with the rules indicated in each contract. This includes but is not limited to leases, apartment or cooperative committee rules, HOA rules, or rules established by tenant organizations. Read your lease, and if applicable, consult with your landlord to avoid breaching contracts

How to start rental arbitrage in Arizona?

1. Convince the landlord

Let’s say you want to get into rental arbitrage. You may be wondering, how do I find rental arbitrage properties and how should I convince the landlord? Later in the blog, we’ll be explaining how to find a good property by doing proper research using short-term rental analytics. In this section, we will be focusing more on how to convince a landlord to do rental arbitrage. As you’ll begin your rental arbitrage journey, you’ll come to know that this is the hardest part of the whole process.

You need to be prepared and well-researched about the popularity of Airbnb in your area. Having good communication skills will also come in handy! Here’s one thing that you should always keep in mind: never sublease without informing the landlord. There will be a huge number of people coming in and out when you’re sub-renting, so the landlord will most likely figure out that you are subletting and you might end up getting in trouble.

When convincing the landlord, rule number one is to always talk about the upsides. If you can rent the property on Airbnb, so can the landlord himself. You need to make a deal with the landlord that is beneficial to them. So in return, they lease the property to you instead of renting it by themselves.

Points To Tell An Indecisive Landlord:

• Doing rental arbitrage is a full-time business. It doesn’t generate passive income like long-term leasing. You should try approaching older people who are looking for some sort of passive income.
  They are more likely to agree to a fixed long-term lease. You can also reach out to full-time working professionals or business owners. They will also be happy with a source of passive income until their property is well maintained. This brings us to our next point.
• You’ll take care of the house better than a normal renter. As you are using the property for Airbnb, you will maintain it very well to make sure you get better reviews. Having a beat-up property isn’t good for business and you are more likely to monitor it often. 
  Not monitoring it will affect your revenue a lot. You may end up paying a huge sum of money for damages done by someone else. So telling this to the landlord might instill some confidence in them.
• You can ensure timely monthly rent. You can tell the landlord that doing rental arbitrage is a full-time business with ups and downs. It doesn’t guarantee fixed income at all like long-term leasing. But if they lease it to you, you’ll make sure to pay the lease no matter what. Either from the money made after rental arbitrage or from your savings. You need to ensure timely monthly lease payments to gain the trust of the landlord.

In conclusion, you need to take care of the property and treat it like your own. Make sure to timely pay the monthly lease and keep the situation beneficial for both parties. You can also use a free rental arbitrage email template and propose your ideas to landlords!

2. Ensure the property and gain the landlords’ trust

Being on the safe side is always a good idea. You need to make sure you are using the right tools to ensure that the property is safe and neighbors aren’t bothered by guests. Many landlords will have this concern when renting out their property to you. They will be worried about neighbors raising noise complaints and it’s a legitimate concern. To help you with all these problems, here are some suggestions that you can implement: 

• SimpliSafe– These are home monitoring tools that you can install in the house to make sure no suspicious activity is happening there. Make sure to let the guests know about them and have their consent.
• Auto host– Automatically screens problematic tenants.
• InsuraGuest– This insurance and tech company helps you with risk analysis and gives protection beyond Airbnb and VRBO policies.
• Airbnb Profit Calculator– Give your landlord ease of mind by providing income estimates backed by Airbnb data.

On a side note, you can also integrate the majority of these tools with short-term rental management software such as Hostaway or Guesty.

Pros and Cons

What are the pros and cons of doing rental arbitrage in Arizona? Here’s the part where you can set your expectations:

• Pros

  • No need to own, invest, or purchase a property 
  • Low upfront costs
  • Higher chances to repeat and scale easily
  • Generated profit can be used for other investments or businesses

• Cons

  • Invest money and time in furnishing the property